Mortgage bank

A mortgage bank is a bank that specializes in originating and/or servicing mortgage loans. In the US a mortgage bank is a state-licensed banking entity that makes mortgage loans directly to consumers. The difference between a mortgage banker and a mortgage broker is that the mortgage banker funds loans with its own capital.

Generally, a mortgage bank originates a loan and places it on a pre-established warehouse line of credit until the loan can be sold to an investor, such as Fannie Mae, or Freddie Mac. The process of selling a loan from the mortgage bank to another investor is referred to as selling the loan on the secondary market.

Mortgage banks frequently use the primary market to sell loans because the funds received pay down their warehouse lines of credit which enables the mortgage bank to continue to lend. A mortgage bank is not regulated as a federal or state bank and does not take deposits from consumers or businesses. A mortgage bank raises some equity which it uses to guarantee the warehouse line and the bulk of the funds are provided by the warehouse lender.

A mortgage bank can vary in size. Some mortgage banking companies are nationwide. Some may originate a large loan volume, exceeding that of a nationwide commercial bank. Many mortgage banks employ specialty servicers for tasks such as repurchase and fraud discovery work.

Their two primary sources of revenue are from loan origination fees, and loan servicing fees (provided they are a loan servicer). Many mortgage bankers are opting not to service the loans they originate. By selling them shortly after they are closed and funded, they are eligible for earning a service released premium. The secondary market investor that buys the loan will earn revenue for the servicing of the loan for each month the loan is kept by the borrower.

Unlike a federally chartered savings bank, a mortgage bank generally specializes only in making mortgage loans. They do not take deposits from customers. Their funds come primarily from the secondary wholesale market. Examples of the secondary market lenders most known are Fannie Mae, and Freddie Mac.

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